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Mexico Inflation Cools in April
World Economy

Mexico Inflation Cools in April

Mexico’s annual inflation cooled in April further below the central bank’s 3% target, giving policymakers room to keep interest rates on hold amid concerns about a weak currency.

Inflation in the 12 months through April cooled to 2.54%, the national statistics agency said on Monday. That compared with a forecast of 2.61% in a Reuters poll and 2.60% in March.

After falling to a record low in 2015, inflation in Latin America’s No. 2 economy is posting the longest period on record below the central bank’s 3% target.

The central bank said last week, when it held interest rates steady, that it expects inflation to creep up above 3% later this year but to fall back to target by the end of 2016.

Mexican policymakers unexpectedly hiked interest rates in February to support the peso, which has tumbled since late 2014 to record lows amid the slump in oil prices and worries about global growth.

Last week, Mexico’s central bank suggested it could hike again if currency weakness fans inflation expectations but policymakers said there was no sign yet of widespread price pressures from the weak peso.

While the peso recovered some ground after the February hike, the currency fell sharply last week and again on Monday.

   The new data showed consumer prices fell 0.32% in April, a bigger drop than estimates of a 0.25% decrease, falling on summer electricity price subsidies and lower tomato and onion prices.

The core index, which strips out some volatile food and

energy prices, rose 0.22% during the month, higher than a 0.19% seen in the poll.

The 12-month core inflation rate rose to 2.83%, the highest rate since December 2014. That was above a forecast of 2.8% and a 2.76% rate in March.

Falls in non-core energy prices and fresh food weighed on the headline index, Andres Abadia, senior international economist at Pantheon Macroeconomics said in a research note sent to clients, ShareCast reported.

Energy prices were dragged lower as a result of the introduction of new electricity tariffs while fresh food prices declined by 1.4% in comparison to the month before on the heels of a 1% drop in March.

“Overall, these data confirm that inflation pressures in Mexico are weak, and we think that CPI inflation likely will hover around its 3% target during the second half of the year,” Abadia said.

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